Before readers have a panic attack with all the words, concepts and threat of mathematics in the models in the next paragraphs, everything is better dealt with in the practical example below, related to the topic under discussion.
Scenario planning is a relatively newly formalised methodology, concerned with decision-making in very uncertain but important possible future environments, although it has been around in its simplest form for a long time.
This relates to "worst case", "best case" and "most likely case", with each case being associated with a scenario that potentially has a large number of variables, some of which may be more subjective than measurable.
The idea behind scenario planning is less a static model than a basis for discussion and debate, but along reasonably well-defined lines to avoid the usual "but what if ... " diversions in meetings.
Its outputs are so-called "flags" that will help analysts and decision-makers to identify key variables for identifying specific cases and, more importantly, early recognition of changes of direction from one case to another that may require a change in strategy.
In some cases, levels of the flags may be used as triggers for review of the strategy.
If probabilities can reasonably be assigned to the cases, it can be used in conjunction with a probability tree to try to optimise (maximise or minimise) some measurable item or risk.
For this discussion, there are only four cases to consider: in its current aggressive form, Russia wins; Russia withdraws; the conflict lasts more than another three years: the conflict is over within the next two years.
At this stage, knowing what you already know and believe likely, you can try to fill in a) the probabilities that you consider appropriate for each outcome and b) put an X approximately where you think we are now.
Already you will find that you need answers to some of the questions like: "What factors made me say that?"; "How sure am I that I am evaluating the situation correctly?"; "Which of the factors needs to change to affect my assessment? By how much? How are they related to each other?"; "Is it the same set of factors for each case or are there additional ones for each and some that are not relevant for a specific case?" and "what would it take to make me change my mind?", possibly in the form of a single action or level of (de-)escalation of actions.
Some of the factors that you might consider are: support that the Ukraine is receiving (financial and military); where the attack/resistance lines/fighting is taking place; the rhetoric being used by the major participants; the arrival of more troops, especially from Russia; possible developing backlash within Russia against the loss of soldiers.
Note that simply documenting these may be key to your greater understanding and assessment of the new articles and opinions that you may read.
You will notice that specific assumptions and opinions are not offered here. That is simply to avoid controversy or dismissal of the methodology in cases where anyone has their own strongly held beliefs.
It is likely that discussions will take place around some other items that were previously considered of minor importance. For example, the involvement of the USA actually became more personal through then vice-president Joe Biden’s son becoming involved in the burgeoning oil industry, later used by his opponent for the presidency, Donald Trump, who was trying to use it to his advantage.
Most of the member countries of Nato also joined the European Union as it developed. Some of the members more recently approved for Nato are Montenegro (2017), North Macedonia (2020), then a spate in 2004, consisting of Albania, Bulgaria, Romania, Slovakia and Slovenia and the Baltic States of Estonia, Latvia and Lithuania. Croatia joined in 2009.
The significance of these countries now being essentially "anti-Russian" should not be underestimated.
Kaliningrad is an enclave isolated from the Russian mainland with only a corridor for access to the motherland granted by Poland and Lithuania. Suddenly, a new application to join Nato has been received from Sweden, which maintained neutrality in World War 2 and until now has seen no need to join.
But the fact is that Stockholm is almost directly across the Baltic Sea from Kaliningrad, which is known to have a huge arsenal of weapons, almost certainly including hypersonic missiles, capable of delivering a bomb or bombs in less than a minute!
Turkey (1952) is also interesting, being in Nato but not yet in the EU, bordering Russia but, like the USA, not sharing any border with any other NATO country. It has been a major destination for ships carrying Ukrainian wheat exports.
The approach using a probability tree model is more suitable where it is believed that the probability of one of the cases is dependent on the other. For instance, if the belief is that the longer the war drags on, the more likely Russia is to win, or vice versa.
One other key point to consider is the extent to which loss or perceived loss will impact the decision makers — in some cases, probably life-threatening.
Please also note that this methodology is well suited to other difficult questions around strategic action decisions.
- Liston Meintjes is an independent consultant and analyst of business, economics and markets, with many years’ experience in the investment industry.
